DHANESH NARBHERAM BHANSALI, MUMBAI V. ACIT CIR 15(3), MUMBAI

ITA 1505/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88644 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 04-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 21-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LOVE KUMAR
• Section: 44AD; 43B

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUM BAI BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG, ( JM) . . , , ./I.T.A. NO.1505/MUM/2011 ( / ASSESSMENT YEAR : 2007-08) SHRI DHANESH NARBHERAM BHANSALI, URVASHI, FLAT NO.701, SAYANI ROAD, OPP, RAVINDRANATH MANDIR, PRABHADEVI, MUMBAI-400025. / VS. ASSTT. COMMISSIONER OF INCOME TAX CIR 15(3), MUMBAI. ( / APPELLANT) .. ( / RESPONDENT) ./ ! ./PAN/GIR NO. :AGGPB2103D ' / APPELLANT BY SHRI K GOPAL # ' / RESPONDENT BY SHRI LOVE KUMAR $ % # &' / DATE OF HEARING : 4.3.2015 () # &' /DATE OF PRONOUNCEMENT :18.3.2015 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 29.12.2010 PASSED BY THE LD. CIT(A)-26, MUMBAI AND IT RELATES TO THE ASSESSMENT YEAR 2007-08. ITA. NO.1505/MUM/2011 2 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD. CIT(A) IN RESPECT OF FOLLOWING THREE ISSUES : A) DISALLOWANCE MADE OUT OF SALARY AND WAGES; B) DISALLOWANCE MADE UNDER SECTION 43B OF THE INCOM E TAX ACT, 1961; AND C) ADDITION OF CAPITAL INTRODUCED BY THE ASSESSEE. 3. THE ASSESSEE IS IN THE BUSINESS OF UNDERTAKING C IVIL CONTRACT WORKS AND INTERIOR DECORATION WORKS. THE FIRST ISSUE RELA TES TO DISALLOWANCE OF RS.9,14,660/- MADE OUT OF SALARY AND WAGES EXPENDIT URE. THE LD. COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED THAT THE ASSES SEE HAS CLAIMED A SUM OF RS.11,01,560/-AS EXPENDITURE TOWARDS SALARY AND WAGES. THE AO NOTICED THAT A SUM OF RS.9,14,060/- HAS BEEN PAID TO TEMPORARY WORKERS BY WAY OF CASH. SINCE THE VOUCHERS PRODUCED BY THE ASSESSEE WERE FOUND DEFICIENT OF CERTAIN ASPECTS, THE AO DISALLOWED THE ENTIRE AMOUNT OF RS.9,14,060/-. THE LD. CIT(A) ALSO CONFIRMED THE S AME. 4. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMI TTED THAT THE ASSESSEE COULD NOT HAVE EXECUTED HIS CONTRACT WORK WITHOUT EMPLOYING THE LABOUR FORCE. HE FURTHER SUBMITTED THAT THE ASSESSE E HAS FURNISHED THE VOUCHERS EVIDENCING THE PAYMENTS AND HE WAS CONSTRA INED TO EMPLOY LOCAL LABOURERS FOR EXECUTING THE WORM. ACCORDINGLY, HE SUBMITTED THAT THERE IS NO REASON TO DISBELIEVE THE ENTIRE WAGES PAID BY TH E ASSESSEE IN CASH. 5. ON THE CONTRARY, THE LD. DR SUBMITTED THAT THE EVIDENCES FURNISHED IN SUPPORT OF PAYMENT OF WAGES WERE MOSTLY SELF MAD E VOUCHERS AND HENCE THE AUTHENTICITY OF THE WAGES PAYMENT BECOMES QUESTIONABLE. ITA. NO.1505/MUM/2011 3 6. THE ADMITTED FACT IS THAT THE ASSESSEE IS IN THE BUSINESS OF UNDERTAKING CIVIL CONTRACT WORKS AND DECORATION WOR KS. IT IS A COMMON KNOWLEDGE OF EVERYBODY THAT BOTH KINDS OF WORK INVO LVE HUGE LABOUR EXPENDITURE. THE ASSESSEE HAS CLAIMED LABOUR EXPENS ES OF RS.11.01 LAKHS, OUT OF WHICH THE SUM OF RS.9.14 LAKHS HAVE BEEN PAI D BY CASH. THE AO HAS HOWEVER, DISALLOWED THE ENTIRE EXPENDITURE INCURRED BY WAY OF CASH ON THE REASONING THAT THERE ARE CERTAIN DEFICIENCIES IN TH E VOUCHERS PRODUCED BY THE ASSESSEE. IN OUR VIEW, IT MAY NOT BE JUSTIFIAB LE TO DISALLOW THE ENTIRE CLAIM OF EXPENDITURE FOR THE DEFICIENCIES FOUND IN THE MAINTENANCE OF VOUCHERS, PARTICULARLY FOR THE REASONS THAT THE ASS ESSEES WORK NECESSITATES EMPLOYMENT OF SIZABLE LABOUR FORCE. DURING THE COU RSE OF HEARING, THE LD. AR BROUGHT TO OUR NOTICE SOME OF THE VOUCHERS PLACE D IN THE PAPER BOOK. HE SUBMITTED THAT THE SIGNATURE OR THUMB IMPRESSION OF THE WORKERS HAVE BEEN OBTAINED ON THE LABOUR PAYMENT SHEET ITSELF. HE SUBMITTED THAT THIS PRACTICE IS GENERALLY FOLLOWED IN ALL THE CONSTRUCT ION CONTRACTORS, SINCE LOCAL LABOURERS ARE GENERALLY EMPLOYED FROM THE PLACE OF SITE ITSELF. CONSIDERING THE CHARACTERISTICS OF CONTRACT WORKS, WE FIND SOME MERIT IN THE CONTENTIONS OF LD. A.R. HENCE THE DISALLOWANCE OF ENTIRE AMOUNT, IN OUR VIEW, IS NOT JUSTIFIED. HOWEVER, AS POINTED OUT BY THE AO, THERE APPEARS TO BE SOME DEFICIENCIES IN THE MAINTENANCE OF VOUCHERS , FOR EXAMPLE, THE VOUCHERS CONTAIN ONLY THE NAME OF THE LABOURER WITH OUT ANY ADDRESS. HENCE IT WILL BE DIFFICULT FOR ANYBODY TO VERIFY TH E GENUINENESS OF THE PAYMENT. HENCE, IN ORDER TO PUT THIS ISSUE AT REST , WE ARE OF THE VIEW THAT ITA. NO.1505/MUM/2011 4 A ROUND SUM DISALLOWANCE OF RS.1.00 LAKH IN ORDER T O COVER UP THE DEFICIENCY, IF ANY, IN RESPECT OF CLAIM RELATING TO SALARY AND WAGES EXPENDITURE MAY BE MADE AND THE SAME, IN OUR VIEW, WOULD MEET THE ENDS OF JUSTICE. ACCORDINGLY, WE SET ASIDE THE ORD ER OF LD.CIT(A) ON THIS ISSUE AND DIRECT THE AO TO RESTRICT THE DISALLOWANC E OUT OF SALARY AND WAGES EXPENDITURES TO RS.1.00 LAKH. 7. THE NEXT ISSUE RELATES TO DISALLOWANCE OF VAT TA X PAYABLE AMOUNT BY INVOKING THE PROVISIONS OF SECTION 43B OF THE ACT. THE AO NOTICED FROM THE VAT AUDIT REPORT THAT A SUM OF RS.1,92,087/- WAS FO UND PAYABLE BY THE ASSESSEE. HOWEVER, THE ASSESSEE HAD DISALLOWED A S UM OF RS.93,398/- ONLY IN THE RETURN OF INCOME. HENCE, THE AO DISALLO WED THE BALANCE AMOUNT OF RS.98,689/- BY INVOKING THE PROVISIONS OF SECTION 43B OF THE ACT. THE SAME WAS CONFIRMED BY THE LD. CIT(A). 8. BEFORE US, THE LD. AR CONTENDED THAT THE DIFFERE NCE HAS ARISEN ON ACCOUNT OF REDUCTION OF ELIGIBLE INPUT CREDIT BY THE AUDITOR IN THE VAT AUDIT REPORT. THE LD. AR SUBMITTED THAT THE ASSESSE E HAS CLAIMED INPUT CREDIT OF RS.5,67,185/-. HOWEVER, THE VAT AUDITOR HAS RESTRICTED THE SAME TO RS.3,68,505/-. SIMILARLY, THE ASSESSEE HAD TAKEN THE VAT AMOUNT PAID BY HIM AS RS.7 LAKHS. HOWEVER, THE VAT AUDITOR HAS TAKEN THE SAME AS RS.8 LAKHS. THE ABOVE SAID DIFFERENCES HAVE RESULT ED IN SHOWING OF OUTSTANDING AMOUNT OF RS.1,92,087/-. THE LD A.R S UBMITTED THAT THE VAT TAX PAYABLE, AS PER ASSESSEES CALCULATION, WAS ON LY RS.93,398/- AND IT HAS BEEN DULY DISALLOWED BY THE ASSESSEE IN THE RET URN OF INCOME. ITA. NO.1505/MUM/2011 5 ACCORDINGLY, THE LD. AR CONTENDED THAT THE DIFFEREN CE AMOUNT OF VAT PAYABLE, WHICH HAS ARISEN ON ACCOUNT OF INPUT CREDI T CANNOT BE CONSIDERED TO BE AN OUTSTANDING AMOUNT LIABLE TO BE DISALLOWED UNDER SECTION 43B OF THE ACT. 9. ON THE CONTRARY, THE LD.DR SUBMITTED THAT THE VA T AUDITOR HAS CLEARLY POINTED OUT THAT THE ASSESSEE IS LIABLE TO PAY A SUM OF RS.1,91,878/- AND BY ADOPTING THE SAME THE AO HAS C OMPUTED THE OUTSTANDING VAT LIABILITY AT RS.1,92,087/-. SINCE T HE ASSESSEE HAS DISALLOWED ONLY A SUM OF RS.93,398/- ONLY, THE AO HAS DISALLOWED THE BALANCE AMOUNT OF RS.98,689/-. 10. IN THE REJOINDER, THE LD.AR POINTED OUT THA T THE ASSESSEE WAS ALLOWED TAX CREDIT OF RS.1,77,373/- SUBSEQUENTLY. HOWEVER, UPON VERIFICATION OF RECORD, HE FAIRLY ADMITTED THAT TAX CREDIT WAS GIVEN ONLY IN THE MONTH OF JULY 2008, I.E., BEYOND THE DUE DATE P RESCRIBED FOR FILING THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION. 11. FROM THE FOREGOING DISCUSSIONS, WE NOTICE THAT THE ASSESSEE HAD CLAIMED INPUT CREDIT OF RS.5,67,185/-, WHEREAS THE VAT AUDITOR DETERMINED THAT THE INPUT CREDIT WAS AVAILABLE TO THE ASSESSEE ONLY TO THE EXTENT OF RS.3,68,505/-. FURTHER, THERE WAS DIFFERENCE WITH REGARD TO VAT AMOUNT PAID BY THE ASSESSEE. ACCORDINGLY, THE AO HAS DETER MINED THE VAT AMOUNT PAYABLE AT THE YEAR END AT RS.1,92,087/-. IT IS NO T THE CASE OF THE ASSESSEE THAT HE HAS NOT ACCEPTED THE VAT AUDIT REP ORT. HAVING ACCEPTED THE VAT AUDIT REPORT, IN OUR VIEW, THE ASSESSEE WAS NOT JUSTIFIED IN DENYING ITA. NO.1505/MUM/2011 6 THE VAT LIABILITY SHOWN IN THE AUDIT REPORT. FURTH ER, THE ASSESSEE HAS NOT SHOWN TO US THAT THE COMPUTATIONS GIVEN IN THE VAT AUDIT REPORT WAS NOT ACCEPTED BY THE SALES TAX DEPARTMENT. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT THE LD.CIT(A) WAS JUSTIFIED IN CON FIRMING THE ADDITION OF BALANCE AMOUNT OF RS.98,689/- BY INVOKING THE PROV ISIONS OF SECTION 43B OF THE ACT. 12. THE NEXT ISSUE RELATES TO THE ADDITION OF RS.51 ,000/-, BEING AMOUNT INTRODUCED BY THE ASSESSEE AS HIS CAPITAL IN THE BU SINESS BOOKS. THE LD. AR SUBMITTED THAT THE ASSESSEE HAS BEEN OFFERING IN COME AS PER THE PROVISIONS OF SECTION 44AD OF THE ACT, SINCE HIS TU RNOVER WAS LESS THAN THE PRESCRIBED LIMIT IN THE PRECEDING YEARS. HE SUBMIT TED THAT THE YEAR UNDER CONSIDERATION WAS THE FIRST YEAR IN WHICH THE ASSES SEE HAS MAINTAINED THE BOOKS OF ACCOUNT, WHEREIN THE ASSESSEE HAS INTRODUC ED A SUM OF RS.51,000/- AS HIS CAPITAL. HE SUBMITTED THAT THE ASSESSEE HAS ALSO EXPLAINED THAT HE HAD WITHDRAWN FUNDS FROM BANK IN THE MONTH OF MARCH 2007 AND THE SAME WAS UTILIZED FOR INTRODUCING THE CAPITAL IN THE BOOKS OF ACCOUNT. HOWEVER, THE SAID EXPLANATION WAS NOT FOUN D ACCEPTABLE TO THE AO AND HENCE, HE ASSESSED THE SUM OF RS.51,000/- AS INCOME OF THE ASSESSEE. THE LD.CIT(A) ALSO CONFIRMED THE SAME. 13. SINCE THE ASSESSEE HAS FILED RETURNS OF INC OME IN THE EARLIER YEARS BY COMPUTING INCOME UNDER SECTION 44AD OF THE ACT A ND SINCE THE ASSESSEE HAS SHOWN THAT HE HAS WITHDRAWN THE FUNDS FROM HIS BANK ACCOUNT IN THE MONTH OF MARCH, 2007, WE DO NOT FIND ANY REASON TO ITA. NO.1505/MUM/2011 7 DISBELIEVE THE EXPLANATIONS OF THE ASSESSEE. ACCORD INGLY, WE SET ASIDE THE ORDER OF LD.CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION OF RS.51,000/- MADE ON THIS ACCOUNT. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED ACCORDINGLY IN THE OPEN COURT ON 18TH M ARCH, 2015 IN THE PRESENCE OF BOTH THE PARTIES. () $ * + ,- 18TH MARCH, 2015 ) # % . SD SD ( / SANJAY GARG ) ( . . / B.R. BASKARAN) / JUDICIAL MEMBER / ACCOUNTANT MEMBER * $ % MUMBAI: 18TH MARCH,2015. . . ./ SRL , SR. PS !'#$ %$&' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. $ 1& ( ) / THE CIT(A)- CONCERNED 4. $ 1& / CIT CONCERNED 5. 23 &4 , ' 4 , * $ % / DR, ITAT, MUMBAI CONCERNED 6. 5% / GUARD FILE. 6 $ / BY ORDER, TRUE COPY 7 (ASSTT. REGISTRAR) ' 4 , * $ % /ITAT, MUMBAI